Taking stock of stocks portfolio

Like many other years, last year had been spiced with a few surprises causing some stocks to swing significantly even though the STI index had been relatively stagnant. First and foremost, at the beginning of the year, many of us were of the view that interest rate is likely to move up given the strong US economy. The likelihood that the FED would follow through with at least 3 more interest rate increase had been on the minds of many investors after a bout of 4 hikes in 2018 to 2.5% by December 2018. It appeared that the FED’s the unwritten long-term interest rate target of 3% to 3.5% was due to materialize by 2019.

Banks

Banks in anticipation of the further interest rate hikes were seen increasing their FD rates in hope to attract more fresh funds from depositors in the first half of the year. But all these evaporated and reversed after the FED made a U-turn to reduce the interest rates three times in the following six months from July to December 2019, almost cancelling out all the interest rate hikes in 2018. The U-turn is likely to put margin compression on the local banks’ net interest between lending and deposit rates. On the whole, their share price did not change very much from the beginning of last year to the end of last year. So, if one were to hold bank stocks, it is unlikely that he could make significant capital gains. The only saving grace is that banks have been paying out good dividends.  With the current dividend yield of between 4% and 5%, it is still a good rate compared to bank’s deposit rates. And if one had bought the bank stocks say more than 5 years ago, the yearly dividend yield could be as high as 8% to 10% without any significant change in the banks’ share price. Going forward, it is unlikely that we see a significant increase in the banks stock prices at least in the short term unless there are favourable game-changing happenings like sudden ceasefire of the trade war. For the moment, let us be conservative and hang on the belief that the trade war will continue.

REITs and Properties  

Conversely, the REITs had a good run in the 3rd quarter following a series of interest rate reduction although it appeared that the stock price of most REITs had tapered off somewhat. It had been a pleasant surprise for the REIT shareholders as many had been braving through the series of interest rate hikes in 2018. REITs prices have been elevated by 10-20% since June 2019. The series of interest rate reduction also presented windows of opportunities for merger and acquisition (M&A) activities, but probably at the expense REITs shareholders who have to fork out additional funds to support the rights issues. So far, quite a number of REITs have issued rights for M&A activities. Perhaps, there could be one or two more M&A activities going into the new year as it would be deemed more difficult to justify for FED to lower the interest rate further going forward. Correspondingly, the share price of developers also moved up in response to the interest movement, but it appeared that effect is less impactful compared to the REITs.

Shipyards and Offshores

Then, came the news that Yangzijiang chairman, Mr Ren Yuan-Lin, who was reportedly missing since June 2019 implicating him to be involved in the government’s anti-corruption investigations into the former party secretary of JinJiang City, Mr Liu Jianguo. JinJiang City is where the YZJ shipyards are located. The news, that happened during our national day holiday, wiped out about 20% of YZJ share price from $1.29 to $1.04 when the market opened after the holiday. In the next few days that followed, the share price tanked further to below $0.90. Even the aggressive buying by the company did not help. It managed to elevate the share price by a few percent each time it made open market purchases, but only to see the share price dropped back when it stopped the market purchase activity. With some luck, having sold some stocks in April 2019 before the news broke, it was a good time to replenish this stock at the on-going beaten-down price at that time. More recently, Temasek injected another adrenaline shot in this sector to acquire 30.55% of Keppel Corporation from the float at $7.35 per share to become a majority shareholder of Keppel Corporation. The details have not been fully announced, but that was good enough to push up the share price of Keppel Corp from below $6.00 per share to close to $7.00. In the absence of further news, the share price appeared to have been weakened a little bit since the announcement. But still, such a news is exactly what this limping sector needs at the moment.  

Manufacturing

Despite the flagging economy in 2019 and the numerous negative reporting in the manufacturing sector during the year, some stocks in this sector were doing not too badly. On the whole, it is a mixed bag. Semiconductors and contract manufacturing appeared to be moving up ranging from 15% to more than 100% from start of 2019, but plastic parts and injection moulding segments were in the negative territories. If you have held the right stocks, it was indeed not a bad sector to be in even though the real sector, as a whole, appeared to be relatively bleak.

Plantations

The next sector that sprang a surprise was the plantation sector. Despite the EU‘s announcement of relying less on palm oil for its biofuel since Q2 and India’s restriction of palm oil in October, the share prices of plantation stocks appeared to be on uptrend closely tracking the higher Crude Palm Oil (CPO) price. Apart from Golden Agri, which appeared not to be able to take advantage of the higher CPO price, most stock prices in this sector elevated about 20%-30% in Q4, moving out of the price doldrums in Q3. The last boat to catch this uptrend was probably early to mid-October 2019.

Concluding remarks

Despite that the uninspiring movement of the STI, which is a relatively bank-heavy index, there were actually several windows of opportunities in the year 2019. Indeed, the STI did not move very much, at most 3% to 4% from 3102.8 to 3222.83, from the 2 January 2019 to 31 December 2019, but on the whole, it is still not too bad a year to be in stocks.        

Best of luck! Happy investing!       

Disclaimer – The above points are based on the writer’s opinion. They do not serve as an advice or recommendation for readers to buy into or sell the mentioned securities. Everyone should do his homework before he buys or sells any securities. All investments carry risks.

Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

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